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Rating Action:

Moody's assigns provisional ratings to Adams Outdoor sponsored billboard assets securitization

Global Credit Research - 18 Nov 2010

$355 million of asset-backed securities rated

New York, November 18, 2010 -- Moody's Investors Service (Moody's) has assigned provisional ratings to $355 million of Secured Billboard Revenue Notes (Notes) to be issued by Adams Outdoor Advertising Limited Partnership (Issuer), an indirect wholly owned subsidiary of AOA Management Company Limited Partnership (Adams Ooutdoor or Adams). The Notes will be collateralized primarily by 10,172 billboard faces and associated assets and rights. The Class A Notes partially amortize over a seven year period while the other classes of notes are interest only for seven years. At the payment date in December 2017 (the Anticipated Repayment Date or ARD), if the Notes have not been repaid in full then available cash flow will be applied to repay each class in full, in alphabetic order. The legal final maturity for the Notes is December 2040.

The complete rating action is as follows:

Issuer: Adams Outdoor Advertising Limited Partnership

$253,750,000 Class A Fixed Rate Secured Billboard Revenue Notes, Series 2010-1, rated (P) A2 (sf)

$44,000,000 Class B Fixed Rate Secured Billboard Revenue Notes, Series 2010-1, rated (P) Ba2 (sf)

$57,250,000 Class C Fixed Rate Secured Billboard Revenue Notes, Series 2010-1, rated (P) B3 (sf)

RATINGS RATIONALE

The provisional ratings of the Notes are derived from an assessment of the present value of the net cash flow that the pool is anticipated to generate from the collateral pool, compared to the cumulative debt being issued at each rating category. The collateral for the Notes will consist primarily of 10,172 billboards which are associated with 4,928 outdoor advertising structures and related permits, licenses, ground leases, and parcels of real estate on which the structures are located. As of September 30, 2010, the billboard portfolio generated over $98,000,000 in trailing twelve month revenue with an operating margin of approximately 61%.

The primary risks for the collateral are overall economic conditions which correlate with spending by advertisers, and the competitiveness of billboards as an advertising medium against alternative advertising mediums. The Issuer focuses its operations on providing outdoor advertising services to advertisers in non-major markets. The Issuer's billboards are located across 12 markets spanning 11 states and 133 counties in the Midwest, Southeast and Mid-Atlantic States. The three largest markets by percentage of the Issuer's total revenue are Charlotte, NC (~22.3%), Lehigh Valley, PA (~11.9%) and Charleston, SC (~10.9%). In each of the 12 markets, the Issuer is a leading, if not dominant, provider of billboard advertising services with an average 82% market share based on face count. In addition, the Issuer significant federal, state and local regulations limit restrict construction of new billboards, limiting prospective competition. Finally, we would like to note that while this pool is not nationally diversified we view it as fairly fully diversified given the number of billboard and the diverse geographic footprint of the assets.

Moody's assessed asset value for the portfolio is approximately $404 million. Based on Moody's assessed asset value, the Class A notes have an LTV ratio of approximately 62.75%, the Class B notes have an LTV ratio of approximately 73.6% and the Class C notes have an LTV ratio of approximately 87.8%.

Note that the Issuer is expected to refinance the Notes at or prior to the ARD. However, our ratings do not assume or place any likelihood on such event; instead the rating addresses repayment by the legal final maturity.

The principal methodology used in rating the Notes is described below. Other methodologies and factors that may have been considered in the process of rating the Notes can be found on www.moodys.com in the Rating Methodologies sub-directory. In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.

Moody's Investors Service received and took into account a third party due diligence report on the underlying assets or financial instruments in this transaction and the due diligence report had a neutral impact on the rating.

Finally, it should be noted that Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks, such as those associated with repayment on the anticipated repayment date, the timing of any principal prepayments, the payment of prepayment penalties and the payment of Post-ARD additional interest have not been addressed and may have a significant effect on yield to investors.

MOODY'S V-SCORE AND PARAMETER SENSITIVITIES

Moody's V Score. The V Score for this transaction is Medium/High. The V Score indicates below "Average" structure complexity and uncertainty about critical assumptions. The Medium/High score for this transaction is driven by a variety of factors. This is the first billboard-backed securitization rated by Moody's. As such we have neither historical performance variability nor historical downgrade rates. Nevertheless, the issuer provided in depth historical data which included more than fifteen years of revenue performance drivers for each of the Issuer's twelve markets, and almost ten years of expenses break down. In addition, the issuer has disclosed many relevant characteristics for the securitized pool. Additionally, noteholders are protected only through UCC filing on the assets and pledge of the equity of the SPEs, and do not benefit from mortgages on the real property assets. The absence of mortgages is a weakness. Finally, The servicer of the notes will be Midland Loan Services, Inc., wholly owned subsidiary of PNC Bank, National Association (A2). While Midland is highly experienced with servicing securitizations, it has very limited experience with servicing billboard-backed transactions.

Moody's Parameter Sensitivities. In the ratings analysis we use various assumptions to assess the present value of the net cash flow that the billboard pool is anticipated to generate. Based on these cash flows, the quality of the collateral and the transaction's structure, the total amount of debt that can be issued at a given rating level is determined. Hence, a material change in the assessed net present value could result in a change in the ratings. Therefore we focus on the sensitivity to this variable in the parameter sensitivity analysis. For the Class A notes, if the net cash flows that the billboard pool is anticipated to generate is reduced by 5%, 10% and 15% compared to the net cash flows used in determining the initial rating, the potential model-indicated ratings would change from (P)A2 (sf) to (P)A3, (P)Baa1, and (P)Baa2, respectively. For the Class B notes, if the net cash flows that the billboard pool is anticipated to generate is reduced by 5%, 10% and 15% compared to the net cash flows used in determining the initial rating, the potential model-indicated ratings would change from (P)Ba2 (sf) to (P)Ba3, (P)B1, and (P)B2, respectively. For the Class C notes, if the net cash flows that the billboard pool is anticipated to generate is reduced by 5%, 10% and 15% compared to the net cash flows used in determining the initial rating, the potential model-indicated ratings would change from (P)B3 (sf) to (P) <B3, (P) <B3, and (P) <B3, respectively.

PRINCIPAL RATINGS METHODOLOGY

The principal methodology used in rating this transaction is described below. Other methodologies and factors that may have been considered in the process of rating this issue can also be found in the Rating Methodologies sub-directory on Moody's website.

In broad terms, we first assign a value to the assets (Moody's value) and then determine the amount of debt that can be issued against those assets at a given rating level with reference to a loan-to-value (LTV) table (see below). In doing so, we factor in adjustments based on the results of our qualitative assessment of the transaction characteristics, from strength of legal structure to operational risk to security repayment terms. Moody's asset value is calculated by first simulating an annual net cash flow based on projections for revenue minus the sum of operating expenses, management fees, and maintenance capital expenses. We also simulate two stresses, one in which the Manager defaults and one that accounts for industry down-cycles. The asset value is the discounted value of 30 years of annual cash flow plus a terminal value.

In detail, Moody's develops its analysis as follows. Moody's assesses the historical operating performance of the Issuer and evaluates and analyzes comparable public company data and market information from various third party sources. Emphasis is placed on analyzing expense components as well as future revenue growth potential for the sector in general and for the Issuer in particular. To calculate the value of the entire portfolio, we conducted a scenario based cash flow simulation analysis using the portfolio's annualized data as of June 30, 2010 and historical financials. We simulated the revenue for eleven markets (we treated Ann Arbor and Lansing as one market). For each market we simulated the revenue for each type of billboard (i.e. posters, bulletin and digital) and added those to generate the total revenue for each market. We then added all those revenues to come up with the overall revenue for the pool each year. In our simulation, we assumed that the price per face for each type of billboard is constant at the current price, which itself represents a stress level in comparison to where prices were in 2007 and 2008. We also assumed that the number of faces for each type of billboard remains constant at current levels. Historically, the fluctuation in the number of faces has been relatively small. The utilization rate assumptions provide the variability in our revenue model; we used a triangular distribution based on the calculated average, maximum and minimum utilization rate produced in each market for each type of billboard over a period of up to seventeen years. For instance, for Charlotte, NC posters we used a minimum utilization rate per year of 60%, an average utilization rate of 69%, and a maximum utilization rate of 78%. In addition, assuming that long-term growth in revenue should generally track GDP growth, we assumed that revenues escalate according to a triangular distribution with a minimum increase per year of 1.5%, an average increase of 2.5%, and a maximum increase of 3.5%. Analysis was also done on the potential impact on revenues should the Manager default or if a recession were to occur. We simulated the default of the Manager based on its credit worthiness. In the event of a Manager default, we assume that revenue will decline to 60% of pre-default levels in the year following the default, recover to 80% of pre-default levels in the second year following the default, and revert to 100% of pre-default levels in the third year following the Manager default. The assumption stems from our expectation that at the time of a Manager default there are advertising contracts in place and that a replacement manager will eventually be found and be able to utilize the assets in the same efficiency as the initial Manager. To account for the possibility of an economic downturn we simulate down-cycle scenarios. We assume a 20% probability of occurrence and when a down cycle occurs, we haircut the revenue by 20%. Historically, on static asset pools, the outdoor advertising sector has experienced a decline in revenue every five years on average, with the magnitude of such decline in those years ranging between 5% and 25%. On the expense side of the asset value calculation, we separately incorporated operating expenses, management fees, and maintenance capital expenses. The historical operating expenses for the portfolio were relatively stable (based on dollar amount). However, in our analysis we incorporated higher levels and higher volatility, which were generally consistent with the current and historical performance of other outdoor advertising companies. Based on that we assumed operating expenses as percentage of revenue to vary at a triangular distribution of (42%, 45%, 50%). Historically, maintenance capital expenses were relatively stable (based on a dollar amount) and accounted for very small portion of the revenue. Based on that, we assumed maintenance capital expenses as a percentage of the revenue to vary at a triangular distribution centering around 1.3%. Finally, for management fee we used the contractual obligation of the Issuer: the higher of 5% of revenue or $6.1 million per annum. In conjunction to the revenue and expense stresses, we applied a series of different discount rates based on the riskiness of the future cash flow stream. Discount rates used varied between 10% and 13%.

Based on the above assumptions, Moody's assessed asset value for the portfolio is approximately $404 million. From this number ratings can be determined at varying Loan-to-Values (LTVs) based on the following levels: for Aaa ratings LTV ranges between 30% and 41%, for Aa2 ratings LTV ranges between 39% and 49%, for A2 ratings LTV ranges between 48% and 57%, for Baa2 ratings LTV ranges between 57% and 63% , for Ba2 ratings LTV ranges between 71% and 75%, and for Ba3 and below ratings LTV is =76% The above LTV ranges are based on a "typical" transaction structure. The advanced levels may be adjusted upward or downward based on the specific characteristics of a transaction.

Based on the foregoing, and given the structure of the proposed transaction, adjustments were made to the total amount of debt that can be issued at the requested rating levels as a result of certain transaction features. In particular, the Class A benefits from scheduled principal amortization totaling $56 million prior to the ARD; such amortization will reduce Class A's LTV over such period of time. The scheduled payments to the Class A Notes also benefit, indirectly, the Class B and Class C Notes by reducing the overall debt associated with the pool of assets. Additionally, the Class A Notes account for a much larger percentage of the total debt outstanding compared to the "typical" assumed transaction at its ratings level. Therefore the Class A has lower severity of loss risk compared to the "typical" assumed transaction. The Class B and Class C are also somewhat larger than the "typical" assumed subordinated class and also have somewhat lower severity of loss compared to the "typical" assumed subordinated tranches. As a result, Moody's was comfortable with somewhat higher LTVs than would otherwise have been the case.

REGULATORY DISCLOSURES

Information sources used to prepare the credit Rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information. Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Michael McDermitt
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Giyora Eiger
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's assigns provisional ratings to Adams Outdoor sponsored billboard assets securitization
No Related Data.
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